Fussy Budgeting

By Valerie Lemke

Major shifts in lifestyle such as marriage, children, a new home, remarriage or retirement also require big changes in family finances -- but many people don't know where to begin.

A budget is the essential first step, according to Christopher Rand, a certified financial planner with the MetLife Financial Planning Division in San Diego, Calif.

"Budget and cash flow are the cornerstones of any financial planning," he said, adding that he recommends budgeting for all of his clients.

To begin, start by creating a list of needs and wants. The needs -- rent, food, clothes -- are always going to be there. Many of those items may cost more when your lifestyle changes. The wants are the, "I'd like to have but don't need to have" items such as entertainment and vacations. When cuts are needed, go to the wants category and eliminate from there.

Draw on past spending to establish budget lists. If you can't remember what you bought and how much it cost, follow the paper trail, Rand said. By researching credit card bills and bank statements, almost everything spent in the past six months can be tracked.

With a budget in place, your initial savings goal should be an emergency reserve account amounting to three to six months of your total expenses.

"This is for when something unexpected goes wrong such getting laid off, a major illness or a death," Rand said. Keep this reserve in a secure location you can access immediately, such as a savings account.

Consider the financial ramifications when a specific change in lifestyle comes into play and the affect it has. These are perfect times to re-evaluate your expenses.

Since money problems are the number one reason for divorce, it makes sense that marriage is an ideal time to establish a budget, Rand said.

If two independent, working people who have lived on their own plan to live as one, they will benefit greatly from a shared financial plan. A budget that spells out how to handle financial responsibilities reduces the chance of money problems down the road.

Remarriage carries its own unique issues, particularly if children are involved. For example, "the husband buys his son a nice backpack and his wife is upset," Rand said. An equitable family budget needs to be established or the couple will be arguing over money.

Meanwhile, buying a home requires research and a lot of questions. How much does it cost? Can we afford it?

"You need to sit down with an accountant or financial planner and figure out the costs," Rand said. "On the one hand it's not just the mortgage, but the property taxes, homeowner fees, repairs and maintenance. On the other hand, there may well be a tax advantage to having a mortgage. Get professional help."

A pregnancy also requires revamping your financial plan. Rand cited his and his wife's experience when expecting their first child.

"She was working full time as a school teacher," he said. "There was definitely going to be a loss of income." They made up for the loss by cutting back -- not eliminating -- a very aggressive retirement savings plan to which they'll return in the future.

With infants come expenses, but none as profound as those arising between two and four years of age, when mothers may return to the workforce.

"Child care is a big hit to the budget," Rand said. "There may be a point when two spouses working is a financial problem instead of an asset." If so, crunching the numbers in the existing family budget and perhaps professional counsel will go far in determining the practicality of both parents continuing to work full time.

Between first jobs and retirement, another possible lifestyle change -- a sizable promotion -- offers a prime opportunity to begin saving for such long-term goals as a comfortable retirement.

For more modest savings, Rand offers his personal tips for saving money:

* Don't buy on impulse.

* Pay credit cards of each month.

* Buy in bulk.

* Use coupons.

* Stock up on necessities when they're on sale.

* Entertain at home.

Finally, for clients having trouble getting a handle on expenses, the financial planner is firm in his recommendation to spend only cash for 30 to 60 days -- no plastic and no check book.

"It's a great reality check," he said.

If you get to Wednesday and the food is gone and so is the cash, it's time for ramen noodles.